My client has sold his Sanlam shares that were issued free of charge in January 2001. The proceeds of the sale is just over R 100 000. Computershare / Sanlam acknowledges the sale but does not issue a IT3C for the CGT. Sars says they see it on the system
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
Yes, the transaction must be accounted for in the individual’s return of income for the year during which the shares were disposed of. The value, at 1 October 2001, of demutualisation shares in Sanlam can be determined by using any of the four methods available for this purpose, namely, market value, time-apportionment, 20% of proceeds or weighted average.
Since these shares were listed on the JSE, the market values published by SARS on this website and in Government Gazette 23037 of 25 January 2002 must be used to determine the valuation date value for shares held on 1 October 2001 when applying the market value or weighted average method (Sanlam R8,89 per share).
SARS explains it as follows in their CGT guide:
24.10 Demutualisation shares
When Sanlam Ltd and Old Mutual PLC demutualised and became listed companies in 1998 and 1999 respectively, they issued ordinary shares free of charge to their policyholders. The following should be noted when determining the base cost of demutualisation shares:
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‘B’ in the time-apportionment base cost formulae will be nil, since no expenditure would have been incurred before valuation date in respect of the shares.
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A person who adopts the market value or weighted-average method must use the relevant prices published on the SARS website to establish a base cost for the shares (Sanlam R8,89 a share; Old Mutual R13,63 a share).
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Depending on the price at the time of disposal, the “20% of proceeds” method may give a better result. For example, if Sanlam’s share price was R80 a share at the time of disposal, the valuation date value would be R16 a share (R80 × 20%) which is higher than the market value of R8,89 a share on 1 October 2001.